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Food & Beverage

Some Food and Beverage companies are demonstrating leadership in disclosure, water management, supply chain monitoring and transportation management. But there are areas for improvement across the sector, including the formal engagement of stakeholders, promotion of more sustainable product offerings and employment training and support. Companies in this sector that performed consistently well across The Roadmap expectations were PepsiCo, The Coca-Cola Company, H.J. Heinz, and Campbell Soup.

Food and Beverage

Archer Daniels Midland (ADM)

Beam, Inc.

Brown-Forman Corporation

Bunge Limited

Campbell Soup Co.

Coca-Cola Enterprises

ConAgra Foods, Inc.

Constellation Brands Inc.

Dr. Pepper Snapple Group, Inc.

General Mills, Inc.

Green Mountain Coffee Roasters

Hershey Co.

Hormel Foods Corp.

Kellogg Company

Kraft Foods Group, Inc.

McCormick & Company, Incorporated

Mead Johnson Nutrition Company

Molson Coors Brewing Company

Mondelez International Inc.

Monster Beverage Corporation

PepsiCo, Inc.

The Coca-Cola Company

The J.M. Smucker Company

Tyson Foods Inc.

Key Findings

More companies are showing evidence of C-suite or executive level committee oversight of sustainability issues, with 54 percent performing in Tiers 1 and 2 for the Roadmap’s governance expectations.

The Food and Beverage sector showed marked improvement in their efforts to engage with stakeholders compared to 2012, and is now leading other sectors. Seventy-five percent (18 of 24 companies) show some evidence of engaging stakeholders, compared to 58 percent in 2012.

The Food and Beverage sector is the leader across the CeresRoadmap’s disclosure expectations, showing particularly strong use of a variety of communication vehicles to convey sustainability progress, including those aimed at investors.

Overall, the proportion of companies performing at Tier 1 or 2 levels against supply chain expectations has nearly doubled since 2012.

Only a small percentage of Food and Beverage companies have formal programs to improve the impact of their owned and outsourced transport fleets.

Engaging employees to connect sustainability goals to broader business goals is an opportunity for companies to scale impact, and the Food and Beverage sector is beginning to seize this opportunity. Nearly 60 percent of companies are actively engaging their employees on sustainability issues, demonstrating marked improvement since 2012.

Introduction

Because Food and Beverage companies operate at the intersection of food, water, and energy, they are vulnerable to climate and demographic shifts that present fundamental challenges to their businesses. Population growth and changing consumer preferences put increased pressure on the system to deliver more food, while the impacts of climate change on agriculture, including changing precipitation patterns, put the availability of key agricultural inputs in jeopardy. Changing regulations also require more transparency around product sourcing and nutritional makeup, and consumers are increasingly conscious of where their food comes from and how it is delivered.

The Food and Beverage sector has improved its performance across many Roadmap expectations since 2012, particularly the stakeholder engagement, employee training and support, and supply chain performance expectations. The sector companies now need to focus more deeply on the challenging areas of water management and human rights, where the data show a troubling decline in performance on expectations related to both of these key issues. In 2012, the sector was the best performer on these expectations but has since lost that distinction.

Supply chain is where social, environmental and business risks collide for Food and Beverage companies. This is also where companies are digging in to adjust their business practices to lessen impacts from the farm to the table. Food and Beverage companies are showing improvement when it comes to managing the social impact of their supply chains. Two-thirds of the companies in this sector (16 of 24 companies) now have policies and codes that address many of the International Labor Organization (ILO) core conventions compared to 35 percent (9 of 26 companies) in 2012. On the environmental side, consumers, investors, and NGOs are beginning to take an interest in the sustainable sourcing of agricultural ingredients. Ceres and Sustainalytics conducted a separate research project to take a more in-depth look at how companies in the Food and Beverage sector are sourcing their key agricultural ingredientsand found that the sector is largely in the beginning stages of this journey. Click here to learn more.

Analysis of the Food and Beverage sector’s performance relative to the Roadmap expectations comprises 24 companies including producers of agricultural products, brewers, distillers and vintners, and makers of packaged foods, meats, and soft drinks.

Governance for Sustainability

More companies are showing evidence of C-suite or executive level committee oversight of sustainability issues, with 54 percent performing in Tiers 1 and 2 for the Roadmap’s governance expectations.

There remains significant room for improvement on governance related to key impact areas for the Food and Beverage sector, particularly on biodiversity.

The sector’s performance with respect to management accountability for sustainability has improved, as involvement of senior management in sustainability issues has increased. The shift at the top is important, with 54 percent (13 companies) meeting Tier 1 and 2 criteria compared to less than half in 2012. Even more noteworthy is that only 25 percent (six companies) remain in Tier 4 in 2014 for this expectation because they demonstrate no executive oversight of sustainability issues. In 2012, 54 percent were Tier 4 performers. This is an encouraging trend.

Archer Daniels Midland (ADM) has a sustainability steering committee (SSC) responsible for establishing the company's direction and policies regarding sustainability and ensuring that organizational activities align with the company's commitment to sustainability. The committee consists of 13 members of senior management, including the chairman, chief executive officer, and president.

The complex nature of the challenges facing the Food and Beverage industry requires successful integration of sustainability from the boardroom through the executive team to all employees. With respect to the Roadmap expectation that a committee of the Board have responsibility for environmental and social issues included in its charter, companies in this sector showed modest improvement over 2012, with 38 percent (nine companies) now in Tiers 1 and 2, compared to 35 percent in 2012.

As part of this report, we also analyzed the policies and management structures companies put in place to address their key impact areas. New this year, we evaluated biodiversity policies—which are critical for companies in the Food and Beverage sector given their significant impacts on land and water use. Discouragingly, little is being done to manage biodiversity impact. Ninety-six percent (22 companies) show no evidence of a formal biodiversity policy, or disclose only a general statement acknowledging the importance of the issue. Among those that do show some evidence of integration of biodiversity into management decisions, Molson Coors differentiates itself by providing more detail about how biodiversity considerations are included. No company meets the leadership expectation of setting goals and targets related to biodiversity.

Stakeholder Engagement

The Food and Beverage sector showed marked improvement in their efforts to engage with stakeholders compared to 2012, and is now leading other sectors on the Roadmap expectations, Focused Engagement Activity, Substantive Stakeholder Dialogue, and Investor Engagement.

Seventy-five percent (18 companies) in the Food and Beverage sector show some evidence of engaging stakeholders, compared to 58 percent in 2012.

The Food and Beverage sector showed improvement across all stakeholder engagement expectations. For the Roadmap’s Focused Stakeholder Engagement expectation, the number of Tier 1 companies increased to six in 2014 from zero in 2012. Forty-six percent (11 companies) are in either Tier 1 or 2, meaning these companies either describe how they are engaging key stakeholders in the materiality assessment process, the insights learned and what issues they will prioritize, or include with their stakeholder mapping a detailed description of their engagement activities in terms of frequency and purpose. There is evidence of improvement in the depth of dialogue pursued with stakeholders as well, with 12 percent (three companies) annually disclosing stakeholder feedback and relevant company responses, compared to zero in 2012. While more progress is needed on disclosure of stakeholder engagements, it is encouraging to see some companies moving in this direction in 2014.

Companies in the Food and Beverage sector are also beginning to better engage with their investors on key sustainability issues. Seventy-nine percent (19 companies) refer to material sustainability risks and opportunities within one or more communication tools geared specifically to investors. The leading companies look to engage investors on multiple fronts, and 12 percent (three companies) meet this leadership criteria by addressing material sustainability risk through dialogue with investors as well as disclosing sustainability information using more than one investor related reporting tool.

Disclosure

The Food and Beverage sector is the leader across the Roadmap’s disclosure expectations, showing particularly strong use of a variety of communication vehicles to convey sustainability progress, including those aimed at investors.

Food and Beverage sector companies are increasingly discussing material sustainability risks and opportunities in financial filings. The proportion of companies meeting Tier 1 criteria for this expectation by disclosing two or more material sustainability issues that go beyond compliance and regulation in their financial filings has increased substantially, to 29 percent (7 companies) in 2014, from 4 percent (one company) in 2012.

For example, Brown-Forman uses its 10-K filing to outline key sustainability risks and opportunities, including those related to climate regulation and water availability. Similarly, The Coca-Cola Company provides a detailed outline of how water scarcity and poor water quality pose risks to its business in its most recent 10-K filing.

Performance: Operations

As the leader in addressing GHG emissions, an impressive 79 percent of the Food and Beverage sector (19 of 24 companies) have programs and targets to reduce GHG emissions. But, paradoxically, only 25 percent utilize renewable energy sources.

While the sector leads all others in performance on the Roadmap’s water management expectation, performance is not as strong as in 2012. This shift can be attributed to a change in our methodology, which now requires disclosure of both direct operations and supply chain water use and management to achieve Tier 1 status.

GHG Emissions and Energy Efficiency

The Food and Beverage sector performed well overall with respect to GHG emissions reduction and energy efficiency expectations. Underpinning the sector’s leadership are strong programs and targets to reduce GHG emissions. Seventy-nine percent of the companies in this sector (19 companies) have programs and targets to reduce GHG emissions. However, meaningful progress on renewable energy remains elusive, with only eight percent (two companies) having set quantitative renewable energy goals, albeit with no timeframe for action. Additionally, only 25 percent (six companies) show evidence of some renewable energy use. This dynamic illustrates how, despite the progress on GHG emissions through efficiency and conservation efforts, renewable energy commitments have not factored into corporate climate strategies—a huge area of opportunity for the sector.

Water Management

Water is a key concern for the Food and Beverage sector, and performance on assessment of water-related risk and the scope of water reporting is an important indicator of how this resource is being managed. The sector is split between companies that are communicating proactively on water as a material risk, and companies that are beginning to disclose limited information, or not disclosing at all. Only 33 percent (8 of 24 companies) have conducted a water-related risk assessment using generally accepted internal and/or external tools, identified direct operations and/or key suppliers/supply regions located in areas of water scarcity, and outline other potential water-related risks.

PepsiCo used the World Business Council on Sustainable Development’s Global Water Tool to assess its water-related risks. The company reported that in 2011, approximately 43 percent of its manufacturing facilities were located in water-stressed areas. The company discloses its water-related risks in its 2012 CDP Water Disclosure Project response and has identified regulatory, physical, and reputational risks in relation to water stress.

The indicator for the scope of water reporting has changed since 2012 to include company supply chains in addition to direct operations, and Food and Beverage sector companies have generally failed to fulfill these new criteria. While 71 percent (17 companies) disclose some relevant data for parts of their direct operations, no company provides data on their supply chain water use and management. This result is somewhat surprising given the importance of water to food and beverage operations, and the global nature of the sector’s supply chains.

Human Rights

The Food and Beverage sector has significant exposure to human and labor rights risk, given the large amount of low wage labor that is often employed in direct operations and throughout the supply chain, however many food and beverages companies are not well positioned in this regard. Nearly half of the companies in the sector (11 companies) show no evidence of a human rights policy or statement. Of the companies that do address this issue, none take the leadership step of endorsing the U.N. Guiding Principles on Business and Human Rights. The companies that perform the best -- Kraft Foods Group, Molson Coors, The Coca-Cola Company, Brown-Forman, Dr. Pepper Snapple Group and Beam -- are consumer facing and have the most direct exposure to reputational risks related to human rights controversies.

Performance on two specific labor issues—freedom of association and the elimination of discrimination—has shown some decline since 2012. While two-thirds of companies address freedom of association through a statement or policy, only 13 percent (three companies) have a formal that applies companywide (or to at least 50 percent of total enterprise activity), and provide a detailed statement on the issue with reference to ILO Conventions.

The elimination of discrimination represents another challenge area for the sector. Only 17 percent (four companies) in 2014, compared to 27 percent in 2012, have disclosed a detailed statement listing the types of discrimination they are committed to eliminating, a reference to equal opportunity, and a reference to the ILO. Perhaps more troubling, 33 percent (eight companies) in 2014, compared to only one company in 2012, show no evidence of a formal policy on the elimination of discrimination.

Performance: Supply Chain

Overall, the proportion of companies performing at Tier 1 or 2 levels against supply chain expectations has nearly doubled since 2012.

Large Food and Beverage companies have complex global supply chains that incorporate broad-ranging aspects, from agriculture, to manufacturing and transportation. Investors and other stakeholders are increasingly putting pressure on companies to demonstrate how they are managing social and environmental risks in their supply chains. Partly in response to this pressure, Food and Beverage companies showed substantial improvement in supply chain performance from 2012.

Policies and codes are the foundation for strong management and, accordingly, improvement is most evident in this expectation. Tiers 1 and 2 companies now comprise 67 percent of the sector (16 companies), up from 35 percent in 2012.

With regard to aligning procurement practices with sustainability goals, the results are mixed. While there was modest improvement, only 13 percent (16 companies) achieve Tier 1 and 2 performance, illustrating an opportunity for more internal coordination between functional areas to take sustainability beyond the CSR department and into core business processes.

With regard to engaging suppliers on social and environmental issues, companies must do more to build capacity and improve performance, though they are doing better. Fifty percent (12 companies) meet Tier 1 and 2 criteria by having a formal program in place for engaging suppliers, while only 38 percent met those standards in 2012.

For its cocoa supply chain, Hershey reports that it will commit $10 million over a five year period to programs designed to improve farming practices and raise standards of living among farmers while promoting ethical labor practices, educational opportunities, and socioeconomic growth in their communities.

To ensure enforcement of supply chain commitments, companies must have robust management and monitoring frameworks. Overall, there is significant room for improvement as no company demonstrates leadership in supply chain monitoring by implementing comprehensive programs that are (1) supported by third-party involvement and (2) based on credible, consistent procedures for handling non-compliance that emphasize training and remediation. While there is evidence that some companies are implementing these systems, 29 percent (7 of 24 companies) show no evidence of having systems to monitor human rights in their supply chain. Further, a full 42 percent (10 of 24 companies) show no evidence of conducting any internal or external supplier audits, compared to 38 percent (10 of 24 companies) in 2012. This lack of oversight and transparency can severely limit the effectiveness of any corporate policy, leaving no mechanisms for quantifying the actual uptake or impact of supply chain policies and goals.

Case StudY

To provide investors, companies, and stakeholders with better information on how companies are tackling sustainability challenges associated with agriculture in their supply chains, Ceres and Sustainalytics took a closer look at how the 24 food and beverage companies included in Gaining Ground performed against a set of 14 indicators in the categories of 1) corporate policies and codes, 2) management systems and strategies, and 3) practices and performance. The indicators examined supplier risk assessments, procurement policies, and multi-stakeholder participation as key markers of effective sustainable sourcing strategies. Some companies are pursuing specific verification schemes for individual agricultural inputs such as palm oil, sugar, and coffee. Sixty-seven percent (16 companies) have partnerships with some external verification body, and 29 percent (7 of 24 companies) disclose some data on the amount of raw materials procured from certified sources. For the full analysis of the sustainable agriculture sourcing research, click here.

Performance: Transportation

Only a small percentage of Food and Beverage companies have formal programs to improve the impact of their owned and outsourced transport fleets.

Companies in the Food and Beverage sector operate some the largest distribution networks in the world, and their collective impact has made this sector the target of recent NGO campaigns to lessen their use of fossil fuels, specifically those from Canadian tar sands, in their transport fleets. The analysis looked at whether companies have targets and programs for improving environmental performance of logistics and fleets, with a specific focus on reduction of GHG emissions from outsourced logistics. While 75 percent (18 companies) disclose some evidence that they are beginning to monitor the impact of their transport fleets, the sector lags in setting targets for improvements, with only 29 percent (seven companies) outlining time-bound, quantitative goals for reducing the environmental impact of their transport fleet. It is crucial for companies to move quickly from monitoring and evaluation to more proactive strategies to reduce impact. Transport emissions are under increased scrutiny, and represent an area of increased risk for the sector.

General Mills outlines a goal to reduce the fuel used to ship a pound of product by 35 percent by fiscal 2015 (using fiscal 2009 as a baseline). In 2013, the company began using some semi-trucks powered by compressed natural gas to reduce diesel fuel usage.

Performance: Employees

Engaging employees to connect sustainability goals to broader business goals is an opportunity for companies to scale impact, and the Food and Beverage sector is beginning to seize this opportunity. Nearly 60 percent of companies are actively engaging their employees on sustainability issues, demonstrating marked improvement since 2012.

Having an engaged workforce is critical to ensuring implementation of sustainability initiatives, and mobilized executives are a key outcome of successful outreach. The Food and Beverage sector has shown marked improvement in employee engagement, with 59 percent (14 companies) achieving Tier 1 and 2 performance in 2014, up from four percent (one company) in 2012.

Molson Coors, through a framework called “Our Brew,” promotes its corporate responsibility goals to stakeholders, including employees. The annual employee survey includes a number of ethical, social, and environmental questions, with the results informing each regional business and global function’s targeted action plans.

While the trend of increased employee engagement is certainly welcome, special attention should be paid to how procurement and sustainability functions align their goals, and how key decision makers with oversight of the supply chain are effectively engaged to accomplish them.

Explore the interactive data to see how the Food & Beverage sector performed across all Ceres Roadmap expectations in the Gaining Ground report.